Behind the Scenes of Stock Market Madness!

For those of you living under rocks who haven’t heard, Standard & Poor’s, one of the major debt rating agencies, downgraded U.S. Treasuries from the top rating of AAA to AA+, the first time in history this has happened. The stock market responded on Monday with a 600-plus-point drop of the Dow Jones Industrial Average, a massive sell-off that left most average investors scared and angry (2008 all over again?).

As all hell was breaking loose, we spoke with Charlie Gasparino, senior correspondent for the Fox Business Network, and a man with a reputation for speaking his mind. He was in a unique position to see historic events unfold—and now he lets us know what he thinks could happen this week and in the coming months.

The bottom line for most of us is, in fact, the bottom line: What’s should we do with our money? In an insane market, Gasparino has some remarkably sane suggestions.

Men's Health: So let’s talk about all the fun on Wall Street this morning.

Charlie Gasparino: (laughs) All weekend! Friday night was actually the most interesting time for me in a while. It was like 5 o’clock. ABC did a hit on how the U.S. government is bracing for a downgrade. All day there were well-reported rumors that S&P; could do it Friday. S&P;’s not really saying anything. So as a cover-my-ass move I started making phone calls around 5 o’clock to see about these rumors. And I found out people were really taking them seriously. I sent the memo out around here—the sources that are cited that there could be a downgrade are government sources. The government is the issuer of the debt, and if you know anything about S&P; and Moody’s—the rating agencies—they always tell the issuer about the downgrade first.

MH: So the government had clearly gotten the message earlier?

CG: Oh yeah. The theory here is that they gave the Treasury Department the weekend to prepare the markets.

MH: Kind of like firing someone on Friday so they have the weekend to cool off and not bring a gun back to the office.

CG: (laughs) Right. In some respects, it made no sense. You downgrade on a Friday in the summer? But then when you hear from major trading desks, who are hearing from a government source . . . I mean, these are major banks. I was like, ‘You know what? There’s a good possibility this will happen.’

So there was an odd feeling that night. Then I went to meet some people for dinner and I had my feet up, I was drinking a martini, overlooking the most tranquil lake I’ve seen in a long time at a restaurant—and then I get the call, “They just did it.” And I’m like, ‘Holy shit.’ I did a phone interview with (Fox anchor) Gerri Willis in the parking lot.

CG: It’s been on edge for weeks and weeks and weeks now. I think the debt ceiling kind of underscored some of that but I think [the fear] was built into the market. When you saw that Goldman Sachs and some of the other big firms were revising their Gross Domestic Product (GDP) growth estimates downward, and when you saw some really nasty numbers coming out of GDP, unemployment is still real high, manufacturing growth is low, all that stuff together put the markets on edge, and then you had the S&P; downgrade.

MH: Have we come to a head with all of this now, the debt ceiling debate, the downgrade? Where does all this lead?

CG: It’s interesting. To me, the debt ceiling debate was a really good thing. It really did educate the America people as to (chuckles) just how much we borrow to pay for stuff we obviously can’t afford under the current budget. Well, S&P; didn’t see it as a good thing.

Now we have a downgrade, which underscores everyone’s fears even more. But I’ll tell you this: I think this selloff is less about this downgrade—which was telegraphed, because they told everybody about it—than it is about a general feeling that Washington doesn’t know what it’s doing. There is no plan on the table to grow the economy.

All you have to do is look at the markets today [Monday]. The bond market is up, so people are buying Treasuries despite a downgrade. People think Treasuries are still a pretty safe bet. The stock market is going down. Stocks generally react not off a downgrade, but the notion of what economic growth will be now and in the future. And that’s the negative that you’re seeing. Stock investors are saying, “We don’t think the President and Congress can agree on an economic growth plan, we’re going to see continued sluggish GDP, that means stocks should be lower.”

MH: So from what you see and who you talk to, is this a temporary selloff or the start of a deeper bear market?

CG: Who knows? You don’t know. No one knows. Stocks often overshoot on the downside. The Dow went down to 6,000 in March 2009, and yes that was bad, but it overshot. The Fed was pumping massive amounts of stimulus into the system. We took interest rates to zero. The President had plans to spend $800 billion in fiscal stimulus, which as we all know didn’t work. So the market went down further. But that’s what happens with markets, and it came back. And you see that here. The question is—and we don’t know—is the market rebalancing to reflect what it believes is the long-term health of corporate America in an economy that produces 1 percent GDP growth? Or is this just a temporary reset? You don’t know. Nobody knows.

On the other hand, it’s very possible that you could have corporate profits at a decent level because these are multinational companies. These companies make their money all over the place. Maybe they become even more globally diversified and corporate profits go up and GDP starts inching up a bit, but unemployment stays high. This is a crazy time. This is not a 1987 situation where stocks were tied directly to the U.S. economy. These are global companies.

I don’t want to say this because everybody says this, but don’t panic. If you panicked in 2009 and sold at 6,000 and got back in at 8,000, you lost a lot of money.

MH: Exactly. There’s a lot of blame being thrown around here, at S&P;, at the President, at the Tea Party, but isn’t it better for a person to spend their time on the real story here, which is: Is this a buying opportunity, or a real market crisis, and what do you do with your money?

CG: At some point you have to form a market vision. The average guy should not be day-trading. And you stick to that vision unless it’s proven 100 percent off. What’s going on now is a blurring of ALL our visions of the market, because people were going into stocks. The market was going up to 12,000 before this. So you really have to wait and see what this is.

Getting in and out of markets like this has always been a fool’s sport. It has never, ever, ever worked. People who have sat on their hands and just watched did OK over the long term. Nothing performs better than stocks over the long term. You know that. But . . . people don’t live forever. You have to have a good asset allocation mix and if you’re balanced right—let’s say you went into this selloff 50/50, 50 percent bonds, 50 percent stocks, you’re making money on one side today, definitely. You’re never going to be 100 percent right. But you made more money being invested than not, depending on your asset allocation.

MH: Why should the average investor trust the financial markets? Over the last 3 years we’ve seen so many instances where the markets get crushed because of factors the average person has zero control over.

CG: Well, it’s not so much about trusting the markets, but trusting in corporate America. I talk to really smart guys like Jack Bogle, the guy who used to run Vanguard and one of the great investors of all time. He says, “I invest in corporate America. I invest in ideas and companies. I don’t invest in some trader. I have a bigger vision and take a wider look at it.”

I don’t advocate trading. I advocate watching financial TV and reading things like the Wall Street Journal, and developing your own market view. And based on that view, create an investment framework that works for you and is diversified.

And even be careful about diversification. Everybody’s been putting their money in gold. That’s been known to crash and burn how many times. There have been gold bubbles since I’ve been covering Wall Street. You have to be careful and have a longer-term vision.

The bottom line: You can watch our air and get 45 different opinions and be scared, or get 45 different opinions and develop a viewpoint. People who develop viewpoints generally do OK.

MH: People forget that this is just part of the story and not the end of the world.

CG: It is NOT the end of the world. Here’s what would be the end of the world: If people were running away from our Treasury bonds. That would NOT be good for a lot of reasons. That would be bad. Six-hundred points on the Dow is no fun if you own stocks, but we can get beyond that. If we can’t sell our bonds and investors in the world say, “The USA is really on the road to Third World status, you don’t want to hold its debt,” then you know what? That’s a problem. But they’re not doing that. We’re the tallest midget in the room, but we’re still pretty tall. (laughs)

MH: What do you see going forward?

CG: I think the market could sell off significantly more. The reason I say that is there just isn’t any growth plan. We’ll just have to see what corporate profits look like. And GDP is not growing. There may come point where the market de-couples from GDP. GDP is a bellwether for corporate profits, so when GDP is revised downward, people think corporate profits will be off and you get a stock selloff. But maybe GDP de-couples. You have to see how that trend works.

It should de-couple because companies are global. Just because we don’t have growth here doesn’t mean we won’t have growth in China, which all these companies are invested in and are selling products to. So will GDP de-couple from the market and will investors turn to corporate profits as the bellwether? That’s the question, and no one knows. It will play itself out and it could be rough as it plays itself out.

That’s something to look forward to. I remember when banks de-coupled from the market. Remember in 2007, 2008, and into 2009, the markets were so focused on banks, whether they did well or didn’t do well. Then we reached a point in time when it didn’t matter. Bank of America could go down in price when the rest of the market went up. So we’ll see, because a lot of this selloff is trading off a weak U.S. economy.

This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. You may be able to find more information about this and similar content at piano.io

This commenting section is created and maintained by a third party, and imported onto this page. You may be able to find more information on their web site.

A Part of Hearst Digital Media
Men's Health participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites.